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Unit 1 Strategic Management Process

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Strategic Management Process, External Environmental Analysis and Industry Environmental Anaysis

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Unit 1 Strategic Management Process

  1. 1. Unit-1 Introduction to Strategic Management Dr. Prashant Kalaskar
  2. 2. What is Strategy..??? Why Strategy..??? Dr. Prashant Kalaskar
  3. 3. What is Planning: Action Steps, as answers to… What, How, Who, When, Where …. While Strategy is… An answer to Why… Strategy is bigger than planning Strategy Comes before Planning Strategy decides and shapes up Planning Tactics are ways or process of implementing plans Dr. Prashant Kalaskar Difference between Planning & Strategy
  4. 4. Examples: Vision: Winning of Battle / War and takeover enemy Strategy: Winning a battle, in less than a week, without much loss to human life by December end. Planning: Planning where to send the troops to win the war. Tactics: How soldiers should run in a zig-zag pattern to decrease the chance of being shot. Dr. Prashant Kalaskar Difference between Planning & Strategy
  5. 5. Examples: Strategy: To increase market share Tactics: Offer lower cost solutions than competitors Strategy: Maneuver our brand into top two brands Tactics: Deploy a marketing campaign Strategy: Improve retention of top 10% performers Tactics: Offer best in market compensation plan Strategy: Connect with customers while in our store and increase sales. Tactics: Free wifi in shop, social connect & shopping app Dr. Prashant Kalaskar Difference between Tactics & Strategy
  6. 6. Why Strategy…?? • The ultimate goal of the organizations is to be successful – SUCCESS is: • Survival (long-term success) • Achievement of Goals • Above average returns/Profitability (probably most important, because it determines the ability to achieve the above two) • To provide ROI to the investors. • To create a favorable environment for capital raise Dr. Prashant Kalaskar
  7. 7. Need of Strategy..!! • Market has become Global • Market has become Dynamic • Ever Changing Technology • Growing Competition in domestic as well as in global market • Information based Market • Customer dominated markets Dr. Prashant Kalaskar
  8. 8. What is Strategy..??? Strategy: The unifying theme that gives coherence (reason) and direction to the decisions of any organization Strategic Management: Consisting of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Dr. Prashant Kalaskar
  9. 9. Origin of Strategy..!!! • Strategy comes from the Greek word STRATEGOS, which is formed from stratos, meaning army, and –ag, meaning to lead Strategy Définition Strategies- ‘‘ Systematically planned course of actions for achievement of organizational Objectives or Goals’’ Glueck: ‘’An Unified, Comprehensive & integrated plan, designed to assure that the basic objectives of the enterprise are achieved Dr. Prashant Kalaskar
  10. 10. More Recent Historical Development of Business Strategy • Not until very large companies with the ability to influence the competitive environment within their industries did strategic thinking in the business world begin to be articulated. • Alfred Sloan, CEO of GM, 1923 – 1946 - One of the first to analyze competition- ‘Ford’, and devise a strategic plan based on its strengths and weaknesses. • Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers should pay attention to “strategic factors” which depend on “personal or organizational action.” Dr. Prashant Kalaskar
  11. 11. More Recent Historical Development of Business Strategy • Wartime (WWI and WWII) efforts also impacted strategic thinking and use of formal strategic tools and concepts: • Allocation of scarce resources • Use of quantitative analysis in planning • The concept of “learning curves” • The concept of “distinctive competence” - first mentioned by Philip Selznick, a sociologist. Dr. Prashant Kalaskar
  12. 12. More Historical Development • These concepts serve as the foundation of strategic management study: – Previous “Business Policy” perspectives looked at maintaining a “balance in accord with the underlying policies of the business as a whole.” – Harvard – Kenneth Andrews’ SWOT Analysis was developed – still in use today. – Theodore Levitt’s “Marketing Myopia” argued that when companies fail typically, it is because firms focus on the product rather than the changing patterns of consumer needs and tastes. Ex: Apple introduced a music player with name of iPod and not just as another mp3 player. Dr. Prashant Kalaskar
  13. 13. More Historical Development – Igor Ansoff argued, in response to Levitt, that a firm’s mission should exploit an existing need in the market, rather than using the consumer as the common thread in business. “In reality, a given type of customer will frequently have a range of product missions or needs.” Corporate Strategy, 1965. – BCG developed the “experience curve” and portfolio analysis concepts. – McKinsey & Company’s development of SBUs and the nine-block matrix. – Mintzberg’s “Deliberate, Emergent & Realized Strategies” – Porter’s Generic Strategies Dr. Prashant Kalaskar
  14. 14. Pattern in Stream of Decisions (H. Mintzberg & J. Waters) Dr. Prashant Kalaskar Realized StrategyUnrealized Strategy Emergent Strategy **Normally emergent strategy comes from learning and dissemination within the organization.
  15. 15. Intended & Deliberate • Planned strategies start with intentions, mostly from the chief strategists of the firm. In this regard intentions define the purpose in performing strategic actions. Planning, however, also involves deliberation, which would mean analyzing the purpose for action and evaluating systematically different courses of action. In this sense, intention and deliberation is not the same. To put it simple: intention is purpose, deliberation stands for conscious analysis.
  16. 16. Forms of Strategy • Intended strategy Decisions are determined only by analysis • Realized strategy Decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences Dr. Prashant Kalaskar
  17. 17. The Three Big Strategic “Analysis” Questions • 1. Where are we now? What is our situation? • 2. Where do we want to go? • Business(es) we want to be in and market positions we want to obtain. • Buyer needs and groups we want to serve • Outcomes we want to achieve • 3. How will we get there? Dr. Prashant Kalaskar
  18. 18. Differing Perspectives of the Strategic Management Process Dr. Prashant Kalaskar External Environment Industry Attractiveness Strategy Formulation I/O Model Assets/Skills Assessment Implementation Resources Capability Sustainable CA RBV Model Strategy Formulation Implementation
  19. 19. The Strategy Concept Levels of Analysis Dr. Prashant Kalaskar Corporate Strategy Business Strategy Functional Strategy Choice of Products Choice of Markets Choice of Competitors • Where to Compete? • How to Compete? • How to Contribute? • Grand Strategies • Generic Strategies • Functional Strategies • (Mktg. Mix, Operational, Financial etc.)
  20. 20. Definition of Strategic Management..!! Decisions and actions where organizations Analyze current situation Develop appropriate strategies Put strategies into action Evaluate, modify, or change strategies Dr. Prashant Kalaskar
  21. 21. Characteristics of Strategic Management ..!! Dr. Prashant Kalaskar Corporate-level decisions Greater risk,cost, and profit potential Greater need for flexibility Longer time horizons
  22. 22. Characteristics of Strategic Management ..!! Dr. Prashant Kalaskar Business-level decisions Bridge decisions at corporate and functional levels Are less costly, risky, and potentially profitable than corporate-level decisions Are more costly, risky, and potentially profitable than functional-level decisions
  23. 23. Characteristics of Strategic Management ..!! Dr. Prashant Kalaskar Functional- level decisions Implement overall strategy Involve action-oriented operational issues Are relatively short range and low risk Incur only modest costs
  24. 24. Strategy: Partly Proactive Partly Reactive Dr. Prashant Kalaskar Company’s Experiences Know How's, Strength & Weaknesses Competitive Capabilities Actual Company’s Strategy Adaptive Reactions to Changing Circumstances Planned Strategy New Initiatives Plus Ongoing Strategy, Features Continued from Prior Periods
  25. 25. Strategy is how an organization intends to create value for its stakeholders. Dr. Prashant Kalaskar "If we succeed, how will we look to our shareholders?” The Strategy Private Sector Organizations Financial Perspective "To achieve our vision, how must we look to our customers?” Customer Perspective "To satisfy our customers, at which processes we must excel?” Internal Perspective "To achieve our vision, how must our organization learn and improve Learning & Growth Introducing Strategy Maps A simple model of the value creation process
  26. 26. Strategic Management Process • There are two dimensions of every action – substantive and procedural. • Substantive dimension involves determination of what to do (Strategy) and • Procedural dimension is concerned with determination of how to do (Strategic Management Process). Dr. Prashant Kalaskar
  27. 27. Strategic Management Process • The Term Strategic Management refers to the set of managerial process of forming- • - a strategic vision, • - setting objectives, • - crafting strategy (Strategy Formulation), • - implementing & executing the strategy, • & then overtimes initiating whatever corrective adjustments in the vision, objectives, strategies, & executions are deemed to be appropriate Dr. Prashant Kalaskar
  28. 28. Let us understand some terms… • Visions- What Company wants to achieve in future • Mission- The reason for company’s existence • Goals- What Company wanted to achieve in general in constraint to VISION • Objectives- are specific goals to be achieved in future • Vision - big picture idea of what you want to achieve. • Mission - general statement of how you will achieve your vision Dr. Prashant Kalaskar
  29. 29. Strategic Management Process The process of Strategic Management involves 4 steps: • Strategic Intent • Environmental Analysis & Strategy Formulation • Strategy Implementation • Strategy Evaluation and Control Dr. Prashant Kalaskar
  30. 30. Strategic Management Process Dr. Prashant Kalaskar Strategic Intent Vision, Mission, Business Definition, Objectives Strategy Formulation Internal & External Appraisal SWOT Analysis Corporate & Business Level Strategies Strategic Analysis & choice Strategy Implem- entation Project & Procedural Implemen tation StrategicEvaluation Control
  31. 31. Strategic Management Process Dr. Prashant Kalaskar Defining Vision, Mission & Business Objectives Environmental Analysis Organizational Analysis Setting Objectives & Goals Identifying Alternative Strategies Choice of Strategy Strategy Implementation Evaluation & Control Feedback Reformulate if Required Re-implement if Required Choice of Strategy
  32. 32. Strategic Management • Strategic Management is the field that deals with major intended & emergent initiatives, taken up by the Top Managers on behalf of company. • It involves utilization of resources to enhance performance of the firm, in their external competitive environment. • It involves organization’s Vision, Mission & Objectives & then, • Developing Plans (Strategies) & Policies, so as to achieve set objectives, then, • Allocation of resources Dr. Prashant Kalaskar
  33. 33. Strategic Management • Strategic Management provides overall directions to the organization. • Strategic Management involves not only the Top Management Team but can also includes Board of Directors, Stakeholders, depending upon organizational Structure [size]. • Strategic Management is an ongoing process that evaluates & controls the business. • It allows companies to assess their competitors & helps to set goals & plan strategies to outwit existing & potential competitors. Dr. Prashant Kalaskar
  34. 34. Strategic Management • Strategic Management also allows reassessing of implemented strategies on quarterly, half yearly or annually basis. • This helps to understand, whether implemented strategies are succeeded according to the plans or needs the strategies to be modified or replaced. • If needed, new strategies can be implemented so as to meet the changed circumstances, new competitors, new PEST factors etc. Dr. Prashant Kalaskar
  35. 35. Strategic Management • Formulation of Strategy: It involves 3 main processes….. - Performing situation analysis, self evaluation & competitors analysis (Internal & External Analysis) - Simultaneously, the objectives are set, some objectives are short term & some are long term. - These objectives set (must be in the light of situation analysis) suggest strategic plans. The plan provides the details of how to achieve those objectives Dr. Prashant Kalaskar
  36. 36. Strategic Management • Strategy Evaluation: Johnson, Schulez & Whittington presented a model to evaluate strategic decisions- - Suitability (will it work) - Feasibility (can it be made to work) - Acceptability (will they (employees) work on it) Dr. Prashant Kalaskar
  37. 37. Strategic Management • Suitability of Strategy: Suitability deals with the overall rationale of Strategy - Would it be suitable in terms of environment & Organizational capabilities • Feasibility of Strategy: It is concerned with whether the resources required to implement the strategy are available, or can be developed or obtained. - Does it make economic sense - Would the organization obtain economies of scale Resources can be people, funds, time, information, machines etc. Dr. Prashant Kalaskar
  38. 38. Strategic Management • Acceptability of Strategy: To know, whether the stakeholders will accept the strategies with its expected performance output, which can include: - Return: Benefits expected by Stakeholders (financial or non financial) Ex: Shareholders would expect increase in their wealth Employees would expect improvement in their careers Customers would expect good value to their money - Risk: It deals with the probability & consequences of failure of strategy - Stakeholders Reaction: Deals with likely reactions like- Shareholders can oppose from new investment Employees can oppose outsourcing for fear of loosing their jobs Customers could have concern over a M&A with regard to quality & Support Dr. Prashant Kalaskar
  39. 39. Importance of Strategic Management Strategic Management is must for all those organizations, who dreams to grow. “Survival of Fittest”, does not mean a Strong or Large company will survive. Business has to follow war rule- “Win or Lose” Companies need to have Competitive Advantage These all characteristics of a successful business organizations is possible to have if it follows- Strategic Management- Strategic Analysis, Strategy Formulation & Strategy Implementation. Dr. Prashant Kalaskar
  40. 40. Importance of Strategic Management • Strategic Management has following benefits- a) It helps organization to be proactive than being reactive (ex: Apple, Sony) b)Strategic Management provides a framework for all different decisions of business like- Product, Markets, Manufacturing, resources & investment c) Strategic Management performs a role of Path Finder by making organizations able to identify opportunities in the market & process how to reach them. d)Strategic Management serves as a corporate defense mechanism against mistakes & pitfalls e)Strategic Management helps to develop core competency & competitive advantage for survival & Growth Dr. Prashant Kalaskar
  41. 41. Stakeholders in Business What are Stakeholders? “ Stakeholders are those individuals or group of people, who can affect & are affected by the Strategic Outcomes achieved & who have enforceable claims on Company’s Performance” - These people have stakes in Strategic Outcome of the Company - These people can be positively or negatively affected by these outcomes - These Strategic Outcomes is dependent upon the support or active participation of certain Stakeholders Dr. Prashant Kalaskar
  42. 42. Stakeholders in Business Dr. Prashant Kalaskar Stakeholders Can Be Classified as:- Firm Capital market Stakeholders Organizational Stakeholders Secondary Stakeholders Product market Stakeholders
  43. 43. Stakeholders in Business Capital market Stakeholders:- Stock Market Investors, Debt Suppliers/Banks Product Market Stakeholders:- Customers, Retailers, Suppliers Organizational Stakeholders:- Owner, Employees, Managers, Staff Secondary Stakeholders:- Community, Competitors, Government Dr. Prashant Kalaskar
  44. 44. Stakeholders Expectations in Business Dr. Prashant Kalaskar Stakeholder Group Membership Primary Expectations Capital Market Stakeholders Shareholders Lenders Wealth Enhancement Wealth Preservation Product Market Stakeholders Customers Suppliers Reliable Products at Low Price Receive Highest Sustainable Price Organizational Stakeholders Employees Unions Secured, Dynamic, Rewarding Career Ideal Working Conditions & Job Security Secondary Stakeholders Community or Environment Group Government Not affecting Environment Honest Tax Payment, Safety of Public, Proper utilization of Resources
  45. 45. Stakeholders in Business Different Type of Stakeholders have different expectations or demands from the company - Mainly- Wealth Maximization & to get better ROI or Value for their Money/Investment - If Company provides ROI by Making Short Term decisions, the company can negatively affects the stakeholders If company is making above average profitability, then the company can satisfy its stakeholders Ex: Reducing invest in R & D & giving dividends to investors as short term objectives Dr. Prashant Kalaskar
  46. 46. Strategic Intent • Strategic Intent is the leveraging a firm’s internal resources, capabilities and core competencies to accomplish the firm’s vision, mission and objectives in a competitive environment. (Reason behind formulation of strategy) • It is all about winning competitive battles and gaining leadership position by putting organizational resources to best use. Dr. Prashant Kalaskar
  47. 47. Strategic Intent • When established effectively- a strategic intent can cause people turn out excellent performance. • Strategic intent tries to establish the parameters that shapes the- Values, Motives and Actions of people throughout their organization. Dr. Prashant Kalaskar
  48. 48. The Hierarchy of strategic Intent 1) A broad Vision of what the organizations should be. 2) The organization’s Mission. 3) The strategic Objectives and specific Goals to be pursued relentlessly 4) The Plans that are developed to accomplish the intentions of management in a concrete way. Dr. Prashant Kalaskar 1 • Vision 2 • Mission 3 • Goals & Objectives
  49. 49. Vision Top Management should decide the directional path, on which the company can walk & To know what changes in the company’s- - Product - Market - Customer - Technology - Focus would improve its current market position & future prospect. Thus Strategic ‘Vision’ provides a particular direction to the organization Dr. Prashant Kalaskar
  50. 50. Vision A Clearly articulated Strategic Vision, that communicates management’s aspirations to stakeholders & helps steer the energies of company personnel in common directions. Ex.- Henry Ford’s Vision of a car in every garage had a power because it captured the imagination of others, aided internal efforts to mobilize the Ford Motor Company’s resources & served as a reference point of guaging the merits of Company’s Strategic Actions Dr. Prashant Kalaskar
  51. 51. Examples of Vision Statements ‘There will be a personal computer on every desk running’ :Microsoft software. ‘Our vision is every book ever printed in any language all available in 60 seconds’: Amazon Kindle GM: “to be the world leader in transportation products and related services. We will earn our customers’, enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people.’’ “To be the number one athletic company in the world”: Nike Dr. Prashant Kalaskar
  52. 52. Mission ‘’ Mission is the Statement, typically focused on its present business scope, ‘’Who We Are & What We Do’’. ‘Mission is nothing but the purpose or reason behind existance of the business’ Thus Mission statements broadly describes an Organization’s present capabilities, customer focused, activities & business makeup (Undertaken). Dr. Prashant Kalaskar
  53. 53. Mission Mission is a statement which defines the role that an organization plays in society. Ex.- Cadburry India- ’’To attain leadership position in the confectionary market & achieve a strong presence in the food & drinks sector’’ ‘To organize the world’s information and make it universally accessible and useful’ – Google ‘To give ordinary folk the chance to buy the same thing as rich people do’ – Wal-Mart ‘To contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence.’ - University of Cambridge Dr. Prashant Kalaskar
  54. 54. Components of Mission Statement • Customers: Who are the firm’s customers • Product/Services: What are firm’s major pdts./Services. • Markets: Geographically, where does firm competes • Technology: Which technology firm is using • Concern for Growth/Survival: Is the firm committed to growth & Financial soundness • Self Concept: Firm’s major competitive advantage • Concern for Public Image: Is the firm responsive to Env., Society etc. • Concern for Employees : We value our Customers Dr. Prashant Kalaskar
  55. 55. Mission Organizations should have mission:- a) To ensure unanimity of purpose within the organization. b) Provides basis for motivating the use of the organizations resources. c) To develop a basis or standard for allocating organizational resources d) To facilitate translation of objective & goals into a work structure involving the assignment of tasks to responsible elements within the organization. Dr. Prashant Kalaskar
  56. 56. Characteristics of Good Mission Statement 1. It should be feasible: It should be realistic & achievable on the basis of available resources 2. It should be precise: Neither too large or too short 3. It should be clear: It should be clear enough to lead & understand 4. It should be motivating: Motivating to its employees 5. It should be distinctive: Distinctive to its competitor 6. It should indicate major components of strategy: A growth or combination strategy adopted by company. 7. It should indicate how objectives are to be accomplished: provide clues regarding the manner in which the objectives are to be accomplished Dr. Prashant Kalaskar
  57. 57. Objectives & Goals • Organizations Translate their Vision & Mission in to Objectives • Objectives & Goals are Synonymous to each other. • Objectives are Open ended attributes that denotes future states & outcomes. (Specific) • Goals are Closed ended attributes which are precise & expressed in specific terms (Generic) Dr. Prashant Kalaskar
  58. 58. Example of VMOSA Agriculture Business Development Company • Vision: A vibrant rural economy driven by value-added agriculture. • Mission: To create and facilitate the development of value-added agricultural businesses. • Goal: Recruit local farmers interested/experienced in business development. • Objective: Create a membership of twenty farmers by February 1. • Strategy: Use local farmer leaders with business development skills to develop the businesses. • Action Plan: Form a membership committee to recruit local farmer leaders. Identify forty farm leaders in the area. List their qualifications. Contact them individually with the expectation that half of them will join. Dr. Prashant Kalaskar
  59. 59. Business Definition Business Definition- • A Business definition is a clear statement of the business, the firm is engaged in or is planning to enter. • It answers the question: What is our business in a precise way. • Examples: “We are in the beauty-enriching business” – Helen and Curtis “We are in the business of computer technology” – Intel “ We are in the transportation business” – TELCO Dr. Prashant Kalaskar
  60. 60. D.F Abell suggested business along three dimensions 1. Customer groups – who is being satisfied (customer) 2. Customer needs – what need is being satisfied (products) 3. Alternative technologies – how the need is being satisfied Dr. Prashant Kalaskar
  61. 61. Business definition orientation Dr. Prashant Kalaskar 1. Product definition / orientation 2. Market definition / orientation Company Product definition Market definition Railways We run railways We are a people and goods mover Film producing company We make movies We market entertainment Copying Machine company We make copying equipment We help improve office productivity Oil company We sell gasoline We supply energy
  62. 62. Peter Drucker’s Business Definition View Products may come and go but basic needs and customer groups endure forever. According to him business definition should cover three vital aspects. 1. Product/ Service concept 2.Customer segment 3.Value creation Dr. Prashant Kalaskar
  63. 63. Critical Success Factors (CSF) • The concept of "success factors" was developed by D. Ronald Daniel of McKinsey & Company in 1961 • What gets measured, gets done.. • A quality improvement tool that many organizations use is Critical Success Factors (CSF) which are indicators that measure how well an organization is accomplishing its strategic plan and objectives i.e. Objectives Vs Strategic Plans • As a general thumb rule, CSF should target those factors which affects quality, customer satisfaction, cost, market share and increased revenues. Dr. Prashant Kalaskar
  64. 64. Critical Success Factors (CSF) Lets Understand CSF for a Shoe Manufacturer…. 1) High Quality Manufacturing of Shoes 2) Cost Efficiency 3) Proper Retailing 4) A Good Product Mix 5) A Good Brand Image Dr. Prashant Kalaskar Lets Understand CSF for a Courier Service Company…. 1) Speed of Delivery 2) Reliability 3) Price of Service
  65. 65. CSF with Goals & Mission Dr. Prashant Kalaskar Mission: To become number One Produce store in main street Critical Success Factors -Create Successful Relationships with Suppliers - Attract & Satisfy new Customers - Secure Financing for Expansion Goals: -Gaining a Market Share Locally by 20% -Fresh Food “from Farm to Consumers” in 24 hrs for 75% Products -- Sustain a 98% of Customer Satisfaction -- Expand product range to attract new customers -- Extend Store space to accommodate new Products & Customers
  66. 66. 3 Step Procedure for determining CSF 1) Generate the Success Factors (Identification of CSF) (What does it take to be successful) 2) Refining of CSF’s into Objectives (Formulating objectives w.r.t. identified CSF’s) 3) Identify measures of Performance (Know how, whether organization has succeeded with identified CSF’s) Dr. Prashant Kalaskar
  67. 67. Key Performance Indicators (KPI) • KPI are the measures to Evaluate CSF i.e. to measure performance of the Organization. • If an Organization identify & works on CSF, it will help to achieve its Vision/Objectives • To make the vision Operational (accomplishing vision), it needs to determine its KPI viz.: Pre Tax Profit, Shareholders Equity etc. Dr. Prashant Kalaskar
  68. 68. A Shoe Manufacturer’s KPI • A shoe manufacturer has CSF of High Quality product, cost efficiency etc. Then its KPI will be 1) Brand Recall Rate by Customers 2) Reduced Product Rejection Rate 3) Reduction in number of Complaints from Customers 4) Increased Footfall of New Customers etc. KPI combination should be decided by the company to measure & quantify its success. Dr. Prashant Kalaskar
  69. 69. Benefits of having KPI • It will help the company to measure its progress towards its Objectives. • Every individual employee in the Organization will understand- What is important to achieve its objectives • It can be a tool for Motivation of its Employees. Dr. Prashant Kalaskar
  70. 70. Key Result Area’s (KRA’s) • KRA’s are those functions or functional divisions/ Area’s of Performance in which Organization must continually improve to be successful • Definition: "In simple terms it may be defined as the primary responsibility of an individual, the core area in which each person is accountable" Examples of KRA’s - Customer: Value, Satisfaction - Marketing: To reach ultimate consumers - Production: Continuity of Supply - Finance: ROI, Availability of Funds, Profits etc. Dr. Prashant Kalaskar -Product: Quality & Demand
  71. 71. Example of KRA’s for Human Resource 1) Staffing 2) Employee Relations 3) Employee Development 4) Compensation Planning & Administration 5) Policy Designing 6) Career Development Dr. Prashant Kalaskar
  72. 72. External Environmental Analysis • Environment outside the company in which it is operating • This environment may contain various factors, which may affect the strategic decision making & strategic outcome of the company. • These factors can be classified as: 1) Macro Environmental factors (larger impact) & 2) Micro Environmental factors (lesser impact) It is depending upon the overall impact of these factors on any company. Dr. Prashant Kalaskar
  73. 73. Need of External Env. Analysis. • It provides an idea for the company to understand: 1) Current & future trends in the market 2) Opportunities & Threats for the organization 3) Risks & strategic uncertainties 4) Also suggests corrective measures to overcome its impact. Dr. Prashant Kalaskar
  74. 74. Need of External Env. Analysis. Dr. Prashant Kalaskar The External Environment Strategic Intent Strategic Mission & Strategy Formulation Analysis of general environment Analysis of industry environment Analysis of competitor environment
  75. 75. Opportunities “Opportunities are the chances or favorable conditions for the organization’s growth or performance” • Viz: 1) Emerging or Growing needs of customers 2) Quality & Technology improvements options 3) Expansion in global market 4) Entry or Exit of competitors.. Dr. Prashant Kalaskar
  76. 76. Threats “An External factor that poses Danger or Risk to its Wellbeing or Performance” • Viz: 1) Change in Demography / Demand in market 2) Emergence of Cheaper Technology 3) Regulatory Changes 4) Entry or Exit of Competitors Dr. Prashant Kalaskar
  77. 77. External Environmental Analysis External Environmental Analysis can be done in three perspectives: 1) Analysis of General Environment (PESTLE Analysis) 2) Analysis of Industry Environment (Porter’s 5 Force) 3) Analysis of Competitors Environment Dr. Prashant Kalaskar
  78. 78. External Environmental Factors • Macro Factors 1) Political Factors 2) Economical Factors 3) Socio-Cultural Factors 4) Technological Factors 5) Legal/Regulatory 6) Physical Environmental Dr. Prashant Kalaskar • Micro Factors 1) Global Environment 2) Suppliers Environment 3) Market Environment
  79. 79. Industry Environment Firms Political Factors Economical Factors Socio-Cultural Factors Technological Factors Regulatory Factors Dr. Prashant Kalaskar Supplier’s Environment Market Factors PESTLE Analysis
  80. 80. PESTLE Analysis Definitions: “PEST analysis – an analysis of the political, economic, social and technological factors in the external environment of an organization, which can affect its activities and strategic performance.” “PESTEL model involves the collection and portrayal of information about external factors which have, or may have, an impact on business.” Dr. Prashant Kalaskar
  81. 81. Political Factors • Factors related to the Politics or Government of that Nation. • Different Political Factors will have differential impacts Political factors like: - Nature of Political System, Ideology - Political Structure & its Goals & Stability - Elections, Funding of Elections, Industrial Promotion - Government’s Role in Business Development & Policies - Socio-Political factors Dr. Prashant Kalaskar
  82. 82. Economical factors • Economic factors are related to the production & distribution of wealth, which have its impact on business of an organization. • Economic factors like; - Economic stage of that country at that point of time - Economic Structure- Capitalistics/Socialistic/Mixed - Policies like Industrial/Fiscal/monetary policies - Economic Plans; 5 Yrs plan or Annual Budgets - Per capita income, disposable income, GDP, GNP, BOP - Financial Institutions, mode of transportation etc. Dr. Prashant Kalaskar
  83. 83. Socio-Cultural factors • Factors related to Human Relationships, human behaviors etc. • Socio-Cultural factors like: - Demographic: Population, density & its distribution, age composition, inter-state migration, income distribution - Concern of environment on pollution, corruption & role of media - Values like expectations of society from business, ritual beliefs, changing lifestyle patterns - Family Structure, role of family members in purchasing decision, education level etc. Dr. Prashant Kalaskar
  84. 84. Technological Factors • Factors related to Knowledge applied & materials & machines used for production purpose, which can affect the business. • Factors like; - Sources of Technology: Internal or External, Cost of acquisition of technology, Collaboration etc. - Technology development stage, Man-Machine System - Communication & Infrastructural Technology in Management Dr. Prashant Kalaskar
  85. 85. Regulatory Factors • Factors related to Planning, Regulation & Promotion of economic activities by government that affects business. Factors such as: - Constitutional Framework, Fundamental Rights, - Policies related to Licensing, Monopolies, FDI etc. - Policies related to distribution & Pricing & their control. - Policies related to Import & Export - Other policies related to sick industries, consumer protection etc. Dr. Prashant Kalaskar
  86. 86. Suppliers Environment • Suppliers are associated with the distribution & production system of the organization Factors like: - Cost, Availability & continuity of raw material supply - Cost & Availability of Finance for implementing plans - Costs, Availability & supply of Energy (power/Fuel) - Cost, Availability of Machineries, spares & Maintenance - Bargaining power of suppliers & availability of Substitutes Dr. Prashant Kalaskar
  87. 87. How to perform the analysis? • The process of carrying out PESTLE analysis should involve as many managers as possible to get the best results. It includes the following steps: • Step 1. Gathering information about political, economic, social and technological changes + any other factor(s) • Step 2. Identifying which of the PESTLE factors represent opportunities or threats. Dr. Prashant Kalaskar
  88. 88. ETOP Model Why to prepare an ETOP..? • Helps organization to identify Opportunities and Threats • To consolidate and strengthen organization’s position • Provides the strategists, which sectors have a favorable impact on the organization • Organization knows where its stands with respect to its environment • Helps in formulating appropriate strategy Dr. Prashant Kalaskar
  89. 89. Preparing an ETOP • Dividing the environment into different sectors. • Analysing the impact of each sector on the organization. • Subdividing each environmental sector into sub factor. • Impact of each sub sector on organization in form of a statement. Dr. Prashant Kalaskar
  90. 90. Impact Calculation Dr. Prashant Kalaskar +2 Extremely favorable impact +1 Moderately favorable impact 0 No impact -1 Moderately unfavorable impact -2 Extremely unfavorable impact Trends Probability of Occurrence Impact on Strategies S1 S2 S3 Probability of Occurrence High Medium Low
  91. 91. ETOP Préparation Dr. Prashant Kalaskar Trends Probability of Occurrences Impact on Strategies S1 S2 S3 Increasing Income Level High 2 1 0 High Spending Capability High 2 -1 -1 Attitudes of Work Average -1 0 2 Adaption to Change Low -2 0 0 Social Factor 2 1 0 1
  92. 92. ETOP for Automobile Industry Dr. Prashant Kalaskar S. No. Environmental Factors Opportunity/ Threats Remarks 1 Macro-Economic Factors a Per Capita Income Opportunity Rising PCI means more affordability. (Sixth & Seventh Pay Commission) b Loans Availability Opportunity Banks are ready for giving loans. c Interest Rates Opportunity People can’t pay easy installments
  93. 93. Industry Environment Analysis • Industry is a group of companies, manufacturing similar products , which can be substituted with each other & all the companies are targeting to the same set of customers. • Industry Analysis allows: • 1) A new company to make a strategic decision whether to enter (invest) in a particular industry or not • 2) A old company already present in the industry to make a strategic decision, whether to remain (invest) in the industry or to exit out (divest) from the industry. Dr. Prashant Kalaskar
  94. 94. Porter's 5 Force Model Porter's 5 Force Model (suggested by Michael E. Porter of Harvard Business School in 1979) is a framework to analyze level of competition within an industry and business strategy development. Attractiveness in this context refers to the overall industry growth & profitability with less Risk. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability & produces high risk. Dr. Prashant Kalaskar
  95. 95. Porter's 5 Force Model • The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure. • It captures the key elements of industry competition. • Five forces that determine the intensity of competition in the and therefore Attractiveness of a Market. Dr. Prashant Kalaskar
  96. 96. Porter's 5 Force Model • Porter's five forces include – • Three forces from ‘Horizontal' competition: 1) Threat of substitute products, 2)The threat of established rivals, and 3)Threat of new entrants; and Two forces from ‘Vertical' competition: 4) The bargaining power of suppliers and 5) The bargaining power of customers. Dr. Prashant Kalaskar
  97. 97. Porter's 5 Force Model • This five forces analysis, is just one part of the complete Porter strategic models. • The other elements are the Value Chain and the Generic Strategies. Dr. Prashant Kalaskar
  98. 98. Porter's 5 Forces of Competition Dr. Prashant Kalaskar Threat from Competition Customer Bargaining Power Threat of Substitutes Supplier Bargaining Power Threat of New Entrants
  99. 99. Porter's 5 Forces of Competition Dr. Prashant Kalaskar BuyersSuppliers Substitute products Potential entrants Industry competitors Rivalry among existing firms Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Threat of substitutes
  100. 100. Porter’s 5 Force Model • Porter’s 5 force model allows a company to understand current competitive environment of the industry (Opportunities & Threats) • Then Companies can better understand its Strength & Weaknesses, which company tries to match with the competitive environment, so as to create a secure position in the industry. • The analysis helps the company to formulate competitive strategies to create profitability & improve its Market Share Ex: A Company can have an increasing threats of New Competitors as well of upcoming Technological Advancement along with the existing competitors. Dr. Prashant Kalaskar
  101. 101. Threat of New Entrant • An Growing Industry, having a profitable trends, attracts many new competitors to enter the industry • Depending upon the Attractiveness of the industry, new companies are ready to invest in the industry. • All those new companies, tries to influence the customers of available competitor, so as to earn a respectable market share. Dr. Prashant Kalaskar
  102. 102. Threat of New Entrant • To do so, New Entrants do try to differentiate over existing company’s products by- • Adding new production capacity • Brings in substantial resources in R & D’s • Technological advancement over competitors The extent of threat of by the new entrant by the available competitors can be reduced either by- 1. Entry Barrier 2. Retaliation by the available competitors Dr. Prashant Kalaskar
  103. 103. Threat of New Entrant • Entry Barrier: • In this method, the available companies can create a barrier for a new company to enter in the industry. • Either the entry procedure is difficult- so that new company can’t enter in the industry or • The entry in the industry is costly, & require huge investment, which the new company just can’t afford • So that existing companies will enjoy their sales & Market share Dr. Prashant Kalaskar
  104. 104. Threat of New Entrant Entry Barrier: • The two most important barriers to entry are: • Capital requirements • Government policy and regulations • There are plenty of other potential barriers that might scare new entrants away: • Proprietary products and knowledge • Access to inputs and distribution • Economies of scale and other cost advantages Dr. Prashant Kalaskar
  105. 105. Threat of New Entrant Retaliation by the available competitors: • Retaliation is nothing but a strong reaction made by the available companies, which is like not expected by the new entrant company. • This will not let the new company to spread their roots in the industry • - The retaliation is generally seen in consolidated industry than in fragmented industry Dr. Prashant Kalaskar
  106. 106. Threat of New Entrant Retaliation by the available competitors: • The retaliation can be offered by the companies in either of the following ways- • Heavier investments as compare to new entrant company, so that the machinery, technology or asset advancement can be achieved. • By offering variety & improved quality products • Through economies of scale, reducing the prices of the products, below which competitors just can’t afford, to reduce their prices Dr. Prashant Kalaskar
  107. 107. Threat of New Entrant Industries with high barriers of entry: • Car making: - high upfront capital investment in manufacturing equipment; - Compliance with safety and emission rules and regulation, - Access to parts suppliers, development of a network of car dealerships, big marketing campaign to establish a new car brand with consumers. - Low barriers of entry: computer hard ware industry Dr. Prashant Kalaskar
  108. 108. Bargaining Power of Supplier • It is the situation, which indicates that the market is consisting of few & potential suppliers & large customer base (Purchasing Companies). • Hence the terms & conditions of the suppliers are very high to be handled by the company. • The suppliers may bargain individually or collectively (through associations) or company direct selling is restricted. Dr. Prashant Kalaskar
  109. 109. Bargaining Power of Supplier • The bargaining may be for purchasing the products by the suppliers at lower price with high margins • Selling the products/services at higher prices to the customers. • Selling the products of inferior quality to the customers Dr. Prashant Kalaskar
  110. 110. Bargaining Power of Supplier Following are the conditions , where suppliers bargaining power can be high: • When suppliers are few & buyers are in large number • When the products are unique & not commonly available • When the substitutes of the products are not easily available to the customers • When the suppliers are not critically dependent on the earnings of products/services supplied Dr. Prashant Kalaskar
  111. 111. Bargaining Power of Supplier Following are the conditions , where suppliers bargaining power can be high: • When the buyers buys in limited quantity, which is not important to the suppliers. • If the suppliers can have a forward integration with the retailers, with which they can make their own products. • Where the association of the suppliers is strong & company is dependent on suppliers to supply their products & services Dr. Prashant Kalaskar
  112. 112. Bargaining Power of Supplier Examples: • The PC making industry faces the almost monopolistic power of operating system supplier. Microsoft has abused its power a number of times. • Industries using diamonds, such as jewelry and electronics, face the huge power of DeBeers, that takes advantage of the supply concentration to achieve dominant market share • Less Bargaining Power: Suppliers of Food Processing industries has less BP from farmers Dr. Prashant Kalaskar
  113. 113. Bargaining Power of Buyers • Bargaining power of buyer means, the buyers individually or collectively can put conditions/ demands of purchasing products /services. • Bargaining power is the ability to influence the setting of prices. The bargaining may be for: • Quality in products / services (Hotel Industry) • Prices of the products/ Services lower as they desire • Expecting more value against what they pay Dr. Prashant Kalaskar
  114. 114. Bargaining Power of Buyers The bargaining power of the buyer is more when: • When the buyers are in limited in number • When the buyers are the potential buyer in volume • When the buyers have alternatives for supply & where supplier can supply @ buyer’s conditions. • Switching cost is low, but can affect the suppliers to a great extent Dr. Prashant Kalaskar
  115. 115. Bargaining Power of Buyers The bargaining power of the buyer is more: • 1) When the buyers itself has the ability to integrate backward to create own capacity supply source. • Ex.- Building constructor & material suppliers • - Schools & colleges with uniforms or other material suppliers • Hence the customers can demands for the reducing the prices, which may affect the total profitability of the suppliers Dr. Prashant Kalaskar
  116. 116. Threat of Substitute Products • Substitutes are those products which can be substituted with each others. • When the products has a large number of substitutes, the prices of the products doesn’t move high • Availability of close substitutes produces, negative competitive impact. • Any industry, where close substitutes are not available, the company sales their products at higher prices Dr. Prashant Kalaskar
  117. 117. Threat of Substitute Products Threats of Substitute products is high when: • When the switching cost is low • Prices of substitute products are lower • Quality & performance of the substituted products are either equal or little or greater than major industry products • In such cases, companies can offset the effect of substitute products, by differentiation over competitors i.e. by providing – • Higher Quality, Lower Prices, • Better After Sales Services, • Location Advantage etc. Dr. Prashant Kalaskar
  118. 118. Threat of Substitute Products • Full substitute products are products from different manufacturers that fulfill the exact same purpose. Ex.-Kellog's corn flakes and generic brand corn flakes. • Partial substitutes are products that only partially substitute each other. Ex.- A holiday in Pukhet is not exactly the same as a holiday in Bankok, even though they are both cities and they both feature channels. Dr. Prashant Kalaskar
  119. 119. Protecting against substitution • Distributors may try to protect themselves against substitution with exclusive distribution agreements. Buyers circumvent them with so called grey market imports. • Producers may try to protect their products with strong branding, trade marks, patents and other psychological and legal barriers against substitutes. • Another way to protect from substitution is to make the products incompatible with competing products. An example are the different lens systems for SLR cameras. Dr. Prashant Kalaskar
  120. 120. Threat of Substitute Products Examples of Substitution: • Washing powder- A dozen of brands sitting on the shelves and waiting for consumers to pick them up. Consumer will often pick up the one that is on special on shopping day. • Oil. Although alternative forms of energy are being studied and introduced, most engines today run on gasoline. Gasoline can not be replaced that quickly on a large scale. • Pharmaceuticals in the short term, because they are protected by patents. In the long term, generics can dent their market share and profits. Dr. Prashant Kalaskar
  121. 121. Intensity of Rivalry among competitors • In every industry, a good number of companies are present, who competes with each other for creating a competitive position in the industry • Depending upon the nature of the industry & stage of industry, the number of competitors in the industry & intensity of competition is dependent. Dimensions of Rivalry among competitors: A Competitive Structure Demand Conditions Exit Barriers Dr. Prashant Kalaskar
  122. 122. Intensity of Rivalry among competitors A Competitive Structure: This refers to- • No. of Competitors • Sizes & Diversity of the company • Different types of competitive structures have different implications for existing firms & for new entrant. • Structure of the industry vary from Consolidated to Fragmented industry Dr. Prashant Kalaskar
  123. 123. Intensity of Rivalry among competitors Demand Conditions: This refers to- • Nature of the companies & • Demand of existing customers in the industry • A high demand, increasing demand tends to moderate competition, as each company can earn respective MS depending upon their competency levels. • A stagnant demand or de-growing market lead to intensity of competition, so as to take over as much possible market share from the competitors Dr. Prashant Kalaskar
  124. 124. Intensity of Rivalry among competitors Exit Barriers: This refers to situation in the industry, which prevents the companies from leaving the industry, even though, the profitability, ROI is less/negative in the industry. The exit barriers may be- • Economic exit barriers • Emotional exit barriers • Strategic Factors, which prevent companies to exit from the industry Dr. Prashant Kalaskar
  125. 125. Intensity of Rivalry among competitors Exit Barriers: • Barriers to exit are obstacles to market players who realize that they will not turn a profit and would like to quit the market. • The difficulties of exiting a market can force a player to keep competing as the least bad alternative. • The increased competition affects negatively the other incumbents. Dr. Prashant Kalaskar
  126. 126. Intensity of Rivalry among competitors Exit Barriers: Examples 1) Industries with high barriers to exit: • Wireless Telecom: the production of an additional minute of wireless call costs virtually nothing, most costs being up front investment in expensive equipment deployment. • Air Travel: adding a passenger to a scheduled airplane cost just a little bit of fuel, as opposed to the huge cost of idle airplanes. Dr. Prashant Kalaskar
  127. 127. Intensity of Rivalry among competitors Exit Barriers: Examples 2) Industries with Low barriers to exit: • Retail: inventory can be moved to more profitable markets or liquidated. • Personal care services: labor is the most important price factor for these services. Dr. Prashant Kalaskar
  128. 128. For Any Query..!!!! Dr. Dr. Prashant B. Kalaskar # 9975770407, 7350520025 Dr. Prashantkalaskar007@gmail.com pbkalaskar@sinhgad.edu Dr. Prashant Kalaskar

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